The Steep Path to a Nuclear Future

A gate guard at the Fukushima Nuclear Power Plant, April 2011.In the wake of the meltdown last year at the Fukushima nuclear plant, the viability of nuclear power has been called into question yet again. The Japanese government has closed down all but one of the country's nuclear plants (though there are plans to start reopening them), and Germany has abandoned a previous decision to keep existing nuclear plants operating. Concern about nuclear power has also increased in the United States, with most opinion polls now showing a majority opposed to further expansion of the industry.

On the other hand, some commentators have been struck by the fact that the disaster did not cause any direct loss of life and that estimates of the adverse health effects of the radioactive releases are very modest. A striking example is English writer George Monbiot. An opponent of nuclear power before Fukushima, Monbiot has switched to the view that nuclear power should be supported as a response to climate change.

Unfortunately, this debate has taken place without much attention to the economics of electricity production. The critical question is whether nuclear power can be a cost-effective alternative as compared to renewables, investments in energy efficiency or even such long shots as carbon capture and storage. A look at the economic cost of the Fukushima meltdown suggests that the path to a nuclear future is steeply uphill.

Estimates of the cost of the disaster vary widely, but the final bill seems sure to exceed $250 billion. That allows for the total loss of the six reactors at Fukushima I (and probably also the four at Fukushima II), along with a multi-year effort to make them safe, the displacement of one hundred thousand people from the surrounding district and the economic cost of a disruption to electricity supply that has already lasted more than a year. Some estimates are as high as $650 billion.

Even the lower estimate amounts to around $5 billion for every nuclear plant in Japan. A sound economic analysis of the cost of nuclear power would include an allowance for the possible cost of disaster. If we estimate, say, five thousand hours of availability per year and impute 10 percent of capital (including depreciation), an allowance of $5 billion per plant would raise the cost of electricity by 10c/kWh, before even considering construction and operation or the cost of transmission and distribution. Fukushima has turned Japan’s decision to rely on nuclear power from a costly but defensible investment in energy independence to an economic disaster.

There doesn't seem to be any way around this. Retrofitting existing plants to protect them against a similarly large tsunami looks unaffordable. Even imposing such a standard on new plants would make them unaffordable, given that the economics were already marginal at best before Fukushima. So Japan has little choice but to move away from nuclear power as fast as possible.

How does this analysis extend to the rest of the world? Almost certainly, a similar calculation done for the former Soviet bloc would yield the same conclusion—the costs of Chernobyl alone are sufficient to make the entire industry an economic failure (and, of course, in that case there was massive loss of life as well). The same analysis would apply to any developing country where safety standards are compromised by a lack of effective enforcement.

For North America and Europe, the story is a bit more complicated. Safety standards have been much better than in Eastern Europe or the developing world, and the risk of a massive tsunami is (mostly) specific to Japan. Still, the cost of these disasters undermines the commonly held view that nuclear power has been unfairly hobbled by excessive concern about safety. Given the costs of a full-scale meltdown, it seems likely that the necessary precautions will add billions to the cost of a typical (say 1 gigawatt) nuclear plant, and even then the remaining risk (expressed in terms of expected cost per plant, as above) will be substantial.

The strongest point that the advocates of nuclear power can make is that the outcome of a similar analysis applied to coal-fired power generation is at least as bad. While coal-fired plants don’t fail catastrophically, their routine operations cause massive health costs through the release of sulfur dioxide, mercury, particulates and even radioactive nucleotides in coal ash.

A study by economists Nicholas Muller, Robert Mendelsohn and William Nordhaus (who are anything but environmentalist zealots) has estimated the cost of the adverse health effects of coal-fired power at over $50 billion per year, which is several times the value added in the industry. If these health costs are combined with a reasonable estimate of the costs of carbon dioxide emissions (say $50/ton) the addition to the cost of coal-fired power would be around 10c/kwH, about the same as the cost associated with nuclear meltdowns.

Both nuclear and coal-fired electricity have appealed to policy makers because they appear to offer reliable cheap power. But when the full costs are taken into account, these technologies are far more expensive than available alternatives, including natural gas, wind power and the often-neglected option of improvements in energy efficiency.

John Quiggin is a Federation Fellow in economics at the University of Queensland, Australia, and an adjunct professor in the Department of Agricultural and Resource Economics, University of Maryland, College Park.

Topics:

Regions:

More stories by:

"If America is to assure its future security and prosperity, we need a new grand strategy that harnesses its peoples’ spirit, sense of optimism, and perseverance..." An excerpt of the new book by the late William C. Martel.